2020 (5) TMI 12 - AT - Income Tax

Deduction u/s 54F - Clubbing of exempt long term capital gain income of minor children - HELD THAT - Lower authorities have not disputed the date of acquisition and sale of assets, nature of asset and the period of holding, at the hand on the minors. There is no dispute that the gains earned by minors were invested in CGAS. After the investment made by minor children u/s 54F left no chargeable capital gain which could be clubbed u/s 64(1A) in hands of assessee. The coordinate bench of Kolkata Tribunal in Rajeev Goyal 2012 (6) TMI 139 - ITAT KOLKATA held that in case of clubbing of income of minors child, deduction u/s 54EC is to be allowed on minors income from LTCG separately and only net income is to be clubbed. In Madan Lal Bassi 2003 (11) TMI 292 - ITAT CHANDIGARH-A Chandigarh bench of Tribunal also held that u/s 45(1), any profits or gains arising from the transfer of a capital asset are chargeable to income-tax. Save as otherwise provided in various sections including section 54F - If section 54F is applied, only the amount of capital gains found taxable after application of above provisions can be charged to income-tax. Therefore, to find out whether there is any profit or gain chargeable to tax u/s 45(1), the provisions of both the sections are to be read together. Section 54F cannot be read in isolation. Tribunal the AO / CIT(A) was not justified in denying the exemption of capital gain to the minors, which was invested in capital gain accounts scheme (CGAS). We direct the AO to allow exemption with regard to the capital gain earned and invested on behalf of both the minors in CGAS. Denial of exemption u/s 54F - AO denied the exemption u/s 54 to the assessee by taking view that the assessee is owner of more than one residential house on the date of transfer of shares from which the assessee earned LTCG - HELD THAT - The entire benefit/gain earned by assessee was invested in CGAS. The assessee further claimed that neither the possession of the asset was given nor conveyance deed was executed. Thus, interest in the asset was transferred. We have noted that there is no clarity about the facts whether the assessee owned any other residential house or not, in the order of AO as well as CIT(A). Therefore, we deem it appropriate to restore this issue to the file of AO to decide the issue afresh. The assessee is also directed to bring all the facts with clarity before AO.

Summary

Issues Involved:
1. Clubbing of exempt long-term capital gain income of minor children.
2. Disallowance of exemption under Section 54F of the Income Tax Act.

Detailed Analysis:

Issue 1: Clubbing of Exempt Long-Term Capital Gain Income of Minor Children

The primary issue here was whether the exempt long-term capital gains (LTCG) income of the assessee's minor children, Aditya and Natisha, should be clubbed with the assessee's income. The assessee argued that the minors' capital gains were invested in the Capital Gain Account Scheme (CGAS) as per Section 54F of the Income Tax Act, thus leaving no chargeable capital gain to be clubbed under Section 64(1A).

The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] initially clubbed the minors' income with the assessee's income without considering the investment in CGAS. The AO issued a show-cause notice and subsequently disallowed the exemption claimed under Section 54F for the minors, adding the amount to the assessee's total income.

The Tribunal noted that the lower authorities did not dispute the dates of acquisition and sale of assets, the nature of the assets, or the period of holding. It was also undisputed that the minors' gains were invested in CGAS, leaving no chargeable capital gain to be clubbed. The Tribunal referred to previous decisions, including those of the Kolkata Tribunal in Rajeev Goyal and the Chandigarh bench in Madan Lal Bassi, which supported the view that if the capital gain is invested in accordance with Section 54F, it is not chargeable to tax and thus should not be clubbed with the assessee's income.

The Tribunal concluded that the AO and CIT(A) were not justified in denying the exemption of capital gain to the minors, which was invested in CGAS. Consequently, the Tribunal directed the AO to allow the exemption for the capital gains earned and invested on behalf of both minors.

Issue 2: Disallowance of Exemption under Section 54F of the Income Tax Act

The second issue was the denial of exemption under Section 54F to the assessee. The AO denied the exemption on the grounds that the assessee owned more than one residential house on the date of transfer of shares, which generated the long-term capital gain. The assessee contended that the properties were jointly held and that the builder had not made the conveyance of the property, thus the assessee had not acquired title to the property which could be considered as ownership.

The Tribunal noted that there was no clarity in the orders of the AO and CIT(A) regarding whether the assessee owned any other residential house. The Tribunal decided to restore this issue to the file of the AO for fresh consideration. The assessee was directed to present all relevant facts clearly before the AO, who was instructed to grant an opportunity of hearing to the assessee and pass an order in accordance with the law.

Conclusion:

The Tribunal allowed the appeal partly. It directed the AO to allow the exemption for the capital gains earned and invested on behalf of the minors in CGAS and restored the issue of disallowance of exemption under Section 54F to the AO for fresh consideration. The Tribunal emphasized the need for clarity and proper opportunity for the assessee to present their case. The order was pronounced in the open court on 25-02-2020.